Porsche Seeks to Overturn Hedge Fund Suit Ruling in New York

Nov. 30 (Bloomberg) -- Porsche SE urged an appeals court to
overturn a ruling that the carmaker must face a lawsuit by hedge
funds accusing it of hiding a plan to corner the market in
Volkswagen AG shares.

Porsche yesterday asked the New York State Supreme Court’s
Appellate Division in Manhattan to reverse Justice Charles
Ramos’s August decision rejecting its motion to dismiss the 2011
lawsuit by 26 hedge funds including David Einhorn’s Greenlight
Capital Inc.

The funds, which bet that Volkswagen stock would fall,
claim Stuttgart, Germany-based Porsche misled investors by
denying through much of 2008 that it intended to acquire
Volkswagen and by using manipulative trades to hide its stock
positions. The plaintiffs are seeking more than $1 billion in
damages.

Robert J. Giuffra Jr., an attorney for Porsche with
Sullivan & Cromwell LLP in New York, told the appellate panel
yesterday that the lawsuits don’t belong in New York because
“Germany has a far greater connection to the issues in this
case than does the U.S. and New York.” Some of the plaintiffs
have also sued the carmaker in Germany.

‘Challenge Disclosures’

The lawsuits “challenge disclosures made in Germany by
Porsche, a German company, about its accumulation of shares of
another German company traded in Germany,” Giuffra said in an
August court filing.

None of the plaintiffs are organized under the laws of New
York and 10 of the funds are domiciled outside the U.S., Giuffra
said in court documents.

“There’s no allegations that anyone from Porsche ever
stepped foot in New York and had any interactions with these
hedge funds,” Giuffra said during yesterday’s hearing.

James B. Heaton III, a Chicago-based attorney with Bartlit
Beck Herman Palenchar & Scott LLP who represents the plaintiffs,
asked the court to uphold Ramos’s ruling, arguing that his
clients either have operations in New York or are managed in the
state.

“Porsche set out to target short sellers,” Heaton said.

Porsche said on Oct. 26, 2008, that it controlled 74.1
percent of Volkswagen’s common stock, partly through options,
and was seeking an eventual takeover. The disclosures caused the
shares to surge as short-sellers raced to cover their positions.

Failed Bid

Investors in Germany and the U.S. have claimed Porsche lied
about its intentions to take over the larger carmaker. The
failed bid led Porsche to agree to sell its sports-car business
to Wolfsburg, Germany-based Volkswagen as debt soared. That
transaction was completed on Aug. 1, when VW purchased the
remaining shares for 4.5 billion euros ($5.8 billion).

U.S. District Judge Harold Baer in New York in December
2010 dismissed a similar suit by two hedge funds, Black Diamond
Offshore and Elliott Associates LP, representing a total of 39
U.S. and foreign-based funds.

In his opinion, Baer said he relied on a U.S. Supreme Court
ruling that fraud claims such as those in the lawsuits against
Porsche apply only to securities listed on domestic exchanges
and domestic transactions in other securities. Baer said his
ruling applies to other similar complaints against Porsche.

The funds appealed that ruling in January 2011, and
subsequently filed suit in New York state court over the same
allegations.

European Suits

Porsche is also being sued in Europe over the issue. A
court in Braunschweig, Germany, in September dismissed two
cases, seeking less than 5 million euros combined. Four more
cases, asking for more than 4 billion euros combined, are still
pending at that court.

Porsche is also battling at least four cases seeking about
31 million euros combined in a court in Stuttgart. A Cayman
Islands-based investment fund sued Porsche for $195 million in
the U.K. in September.

German prosecutors are also investigating former Chief
Financial Officer Holger Haerter and former Chief Executive
Officer Wendelin Wiedeking on claims of market manipulation and
breach of trust. As part of the case, Haerter and another
Porsche manager are currently standing trial on accusations they
made false statements when refinancing a 10 billion-euro loan in
2009.

The New York cases are Viking Global Equities LP v. Porsche
Automobil Holdings SE, 650435/2011, and Glenhill Capital LP v.
Porsche Automobil Holding SE, 650678-2011, New York State
Supreme Court, New York County (Manhattan).